Kaeng Sua Ten dam is not worth the investment

21 January 1998

The Kaeng Sua Ten dam project does not pay.

The project has been attacked because of the earthquake risks, the disruption of local communities, the threat to species, and the destruction of a unique golden teak forest. Yet the supporters of the project have shrugged off these attacks and kept the project alive. But now the project faces a new threat. Recalculations show it is simply not worth the investment. Economically, it’s a bad idea.

In 1996 the Irrigation Department prepared a cost-benefit paper which showed the Kaeng Sua Ten project was financially worthwhile. On the basis of this paper, the Banharn Cabinet reactivated the project.

The cost-benefit study had originally been prepared by the FAO in 1991. The Irrigation Department had just updated the figures. The Budget Bureau suggested the analysis should be redone more thoroughly. It contracted the work to the Thailand Development Research Institute. The TDRI’s recalculation, completed in July 1997, concludes: "The net benefits, estimated according to standard international procedures, are less than the costs. Hence this investment project should not be supported from the national budget."

The change is not only about numbers. It also reflects important shifts in what ‘development’ means and in how it is managed.

1. From "logger mentality" to sustainable environmentalism. In the original calculation, the revenue from harvesting the teak from the flood zone accounted for over half of the profit margin on the whole project.

This revenue has to be offset against the loss of future revenue which would be gained by conserving the forest, and managing it sustainably by cutting and replacing trees in the long term. In the original study this figure was very low, for two reasons. First, the study vastly underestimated the number and size of the teak trees in the zone. Second, it assumed that the international price of teak would not rise after the year 2000.

TDRI asked the Forestry Department to count the trees again, and used World Bank long-term projections of timber prices. As a result, the value of this lost revenue increases four times over the original study. And the financial implication of cutting or keeping this forest is quite transformed.

This is much more than a change of arithmetic. It is also a shift of mentality. The earlier calculation suited a "logger mentality". Cut the trees down. Sell them off. Pocket the money. This is not surprising given that the Forestry Department is still oriented to making short-term profits from forests rather than conserving them. Supporters of the project have argued that the golden teak forests around Kaeng Sua Ten are nothing special (Montri Pongpanich claimed they did not even exist) and could easily be replaced elsewhere.

The new calculation has a very different implication. The forest is unique - the best examples of a natural golden teak forest remaining in Thailand. The area is large. The trees are well-developed. Replicating this forest would require a large investment, a long time, and a new location which does not exist.

2. From institutional bias to transparency. The Irrigation Department in charge of the project has an institutional bias towards building large flood dams for supporting rice cultivation. This is what the Department was set up to do. This is what it is good at. The Department tends to oppose alternative suggestions. Some engineers showed that a series of small weirs on the Yom river could also render the irrigation benefit without disrupting communities, species and trees. The Irrigation Department brushed the suggestion aside.

The new TDRI calculation notes that many of the figures used in the 1996 calculation were shaky. Labour was costed at 25-30 baht a day (now and forever) even though the realistic rate is already 2-3 times higher than this. The exchange rate was assumed constant for the next 50 years. Export and import prices would not change after 2000. The calculation of basic costs and benefits based on 1991 was lumped together with environmental mitigation costs from 1994, resettlement costs from 1995, and watershed repair costs from 1996 - without any adjustment to reflect the price shifts over this period.

All of this may just have been careless. But equally the result did support the Irrigation Department’s institutional bias to building big flood dams. The TDRI’s careful recalculation using realistic exchange rates and World Bank projections of future price trends further reduces the financial feasibility of the project. More realistic labour costing in particular helps to double the estimated costs of construction and maintenance.

3. From political dreams to social realities. As the Kaeng Sua Ten project has become controversial, the politicians and bureaucrats backing the project have played up the secondary benefits of electricity generation and flood control. They claim electricity from the dam would feed industrial projects in Phrae. After the bad floods in the central plain in 1995 and 1996, some claimed the dam would reduce the risk of flooding, even as far away as Bangkok.

The original FAO study calculated these secondary benefits as negligible. The dam is not big enough to hold back serious flood waters for more than a few days. The dam is too far upriver, and most of the Yom catchment area is below it. The Yom is the smallest of the four tributaries of the Chaophraya. The dam would not do much to prevent flooding in the lower Yom valley, and would do nothing for Bangkok.

As for electricity, Phrae is already supplied from the national grid. Plus in the management of such a dam, there is a trade-off between the irrigation benefit and electricity generation. Including the electricity part in the calculation actually reduces the overall return to the project.

The dam-supporters have played up these sub-benefits because they appeal to the urban population. Politicians have tried to use the dam to build up urban political support. But the TDRI follows the FAO line. These subsidiary benefits are negligible. The dam must stand or fall on its benefit in irrigation.

The TDRI study has resisted the temptation to calculate other costs which were not included in the FAO version. But these costs are considerable. The area which would be flooded by the dam is not a steep narrow V-shaped valley but a broad, gently-sloping plain. The resulting lake would be large and shallow. In the flood area, there are long-settled villages, an elegant small town, farms, fisheries, and forests. The recent Chulalongkorn University study shows a much more severe and costly impact on the environment than the earlier study used for the cost-benefit calculations.

On top of this there are new methods for assessing the social impact of such projects which would add further to the costs. And the baht slide will inflate the construction costs since over half will require foreign exchange.

Despite the report’s clearly negative conclusion, this is not the last word on Kaeng Sua Ten. The project has a long history, littered with reports, assessments, feasibility studies and cost-benefit analyses. Supporters of the project have brushed aside environmental, geological and social data which condemn the project. They will not give up because one report says the dam is not worth the investment. The Irrigation Department needs to build more dams to justify its existence. Politicians want to build the dam to show form to their urban constituents. The logging profits and construction commissions are enticing. Already the Irrigation Department has sat on this report for six months. Some officials have dismissed it as "only a technical exercise".

But the TDRI report is important not just for Kaeng Sua Ten but for the whole process of planning development. It uses standard cost-benefit technique, but demands that we update our ideas about what are the real costs and the real benefits. It moves beyond the old "logger mentality" of short-term gain, beyond the institutional bias towards dam-fed wet rice, and beyond the political tilt towards powerful urban lobbies and profiteers.

Net Present Value (baht millions) FAO, 1991 TDRI, 1997

Major investment costs (dam construction) 1157 2098

Other investment costs (highway, resettlement) 470 1214

Environmental impact mitigation - 453

Foregone production (crops, sustained logging) 124 491

Operating costs 203 570

Total costs 1955 4827

Benefits: Crops 2438 3755

Timber stumpage 600 709

Other 52 131

Total benefits 3090 4596

Net benefit-cost 1136 (232)

Report on the suitability and feasibility study of the Kaeng Sua Ten project, Phrae province (TDRI, July 1997, in Thai)